Must housing hit bottom to have a strong recovery?

Here’s a question I’ve wanted to ask economists on both sides of the aisle about the U.S. economy:

Does the real estate market have to hit bottom before we can have a strong recovery?

So last week I went to a debate at the Stanford Institute for Economic Policy Research and posed that question to one-time Obama economic guru Larry Summers and McCain economic guru John Taylor.

I highly recommend watching the whole debate, but to see their full answers, you can go to minute 50:00. Below, I summarize their responses.

Taylor: “I actually think that we could have a strong recovery if we put in place a budget plan that reduces the growing debt in a sensible way.” Taylor thinks the key is to clean up Dodd/Frank and monetary policy that’s not so interventionist, more predictable.” Like policies from the 1980s.

And: “The economy can expand. There’s always a weak sector in a growing economy.” In the 80s, the trade sector was weak. “If you could make these changes, the economy would be much better.

Summers: “I don’t think that some new set of housing policies are a central question to the economy right now. My judgment is that at whatever moment the economy starts to have a substantial recovery, you’re likely to see a substantial recovery in housing.” Lots of young people living with their parents will be ready to enter the housing market as economy improves.

Do we need new housing policies? “Not Necessarily.”

“How likely is that we’ll observe a strong recovery with a still badly depressed housing market, my guess is those two things are unlikely to get together.”